President Michael Schill weighed in on the impact of proposed federal tax reform bills on higher education in his latest Open Mike. Congress is considering changes to the tax structure that would affect graduate employees and many others at the University of Oregon and other institutions of higher education:
Dear colleagues and friends,
For those of us in higher education, the period between Thanksgiving and New Year’s Day is about completing research projects, taking and grading exams, and planning for the winter term. This year, however, we should all be concerned with something going on thousands of miles away in Washington, DC—namely, tax reform efforts being considered by Congress. Simply put, many of the legislative proposals could substantially impede the ability of universities such as the University of Oregon to deliver an excellent, affordable education to our students.
Graduate students have the most to lose under this legislation. About 1,500 graduate students at the UO currently receive full or partial tuition remissions plus stipends. This financial support is vital in enabling them to afford years of graduate education without amassing huge debts. In return for this assistance and as part of their training, graduate students help support faculty research and teach undergraduate courses in the humanities, social sciences, STEM fields, and beyond. Tuition waivers or remissions to graduate students are not now taxable; this would change under the tax bill passed by the House of Representatives. Undergraduates would not be spared from unfavorable treatment. The bill also undermines the practice of lifelong learning by doing away with the lifelong learning credit that provides access to a diverse group of students, particularly nontraditional students. The House bill also proposes ending provisions that permit the deductibility of interest on student debt and the exclusion of the value of tuition waivers provided to university employees and/or their family members enrolled at Oregon universities.
The targeting of undergraduate and graduate students in the push for tax reform is the most damaging element of the legislation from the perspective of universities, but there is more. Under the bills being considered by both the House and the Senate, the standard deduction would be increased substantially and the estate tax would be eliminated. On the one hand, increasing the standard deduction—the amount that taxpayers get to deduct from their taxable income before applying their tax rate—sounds like good news. Proponents argue it will simplify and potentially lower taxes for millions and millions of Americans. Detractors dispute those benefits.
The problem is that universities increasingly rely upon charitable gifts from alumni and friends to support their operations. This is especially important at universities such as the UO, where state support accounts for roughly 8 percent of our total university budget. In the United States, the tax system provides an incentive for charitable giving by allowing donors to deduct from their taxable income the value of their gifts. But only people who itemize their deductions qualify for the charitable giving incentive. So, as more and more people choose the standard deduction in lieu of itemization, the incentive for charitable giving will go down, potentially costing universities across the nation billions of dollars a year. In a similar manner, the existence of an estate tax provides an incentive for people to give away money to charities like universities. Eliminating the estate tax would remove or reduce this incentive.
An additional provision in the tax law targeting private universities is a 1.4 percent excise tax on endowments of more than $250,000 per student. This provision will not affect the UO because of its status as a public institution. Nevertheless, the precedent of taxing university endowments is one that should give us all pause. It could easily be extended in the future to public universities and to schools with smaller endowments.
Why is Congress doing this? One explanation is that, in an effort to reduce the maximum corporate income tax rate from 35 percent to 20 percent while not ballooning the budget deficit, lawmakers are simply digging into all of the crevices of our nation’s metaphorical fiscal sofa looking for as much money as possible. After all, these bills also eliminate the deduction of state and local taxes and reduce the home mortgage interest deduction, two of the most popular tax breaks in the Internal Revenue Code. But, as recent articles in the media suggest, some see elements in the tax reform act as an assault on higher education.
I will leave it for our political scientists to speculate why some members of Congress apparently have chosen to target higher education. Here is what I am doing—and what I suggest that you, as students and members of the faculty and staff, can do. First, the University of Oregon is an active participant in the Association of American Universities and the Association of Public and Land-Grant Universities, and both organizations are actively lobbying Congress to restore the exclusions for graduate tuition waivers and employee tuition benefits as well as the deductibility of student loan interest. They are also arguing that the charitable giving deduction be universal—meaning that it be available to everyone in addition to the standard deduction. We support these efforts.
In addition, members of our governmental affairs staff and I have been meeting with our congressional delegation to let them know the impact of the current proposals on the UO and to urge them to vote against or modify them. If that is something that interests you, more information is available at the American Council on Education website, including a portal to take action with Congress. While the House has already voted on its version of tax reform, the debate continues with the Senate taking a different approach.
Regardless of whether we succeed or fail in stopping elements in the tax reform legislation that negatively affect universities, it is clear that all of us—administrators, staff, students, faculty, alumni, and supporters—need to make the case that higher education in the United States should be cherished and nurtured, not targeted for cuts. Members of Congress and our state legislatures need to rededicate themselves to the idea that affordable higher education is more than a political slogan—it is a priority that needs to be supported with tax dollars. As the son of two parents who did not go to college, I experienced the transformational effect of higher education, and we need to make sure that that door is open to everyone who can benefit from passing through it. Expanding the Federal Pell Grant program, defending the security of DACA students, and expanding rather than reducing tuition support is a necessary component of that effort.
We also need to make the case for graduate education. Our graduate students will complete their education at the UO and go off to careers in academia, the professions, and industry. The research they do here and the work they will do in the future will advance knowledge, fuel the economy, and enlighten generations to come. Our nation eats its own seed corn by reducing our support for them by taxing their tuition waivers.
Michael H. Schill
President and Professor of Law